Monday, January 9, 2017

More for the Minimum

Although we are in the doldrums of winter, Washington workers can expect a little more silver lining their pockets this year. Washington's new minimum wage law went into effect on January 1, 2017, raising wages from $9.47 to $11.00. This increase was a result of Initiative 1433 which passed with over 57% of the vote in November. The law provides for a gradual increase to $13.50 by 2021, then there will be a yearly cost of living adjustment based on the National Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The City of Seattle guarantees even higher wages for workers. Minimum wage for Seattle is based primarily on two factors: size of the company and whether the employer pays towards medical benefits. For example, a worker at a company with over 500 employees where the employer does not contribute $2 towards medical benefits will earn $15/hr in 2017. This is one of the highest minimum wages in the country; but is it enough? Many argue it's not even close, while others predict dire consequences with high minimum wages. How did we get here and has anything changed in the last 80 years since the first minimum wage?

President Franklin Delano Roosevelt signed the Fair Labor Standards Act (FLSA) in 1938. For certain industries, it established a minimum hourly wage of 25 cents an hour. That's $4.19 in 2015 dollars. Compared to this paltry sum, our federal minimum wage of $7.25 appears downright extravagant.

Despite the seeming inadequacy of the wage, the FLSA was considered revolutionary at the time and prompted FDR to address the uproar in one of his fireside chats

Do not let the calamity howling executive with an income of $1000 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company's undistributed reserves, tell you - using his stockholders' money to pay the postage for his personal opinions - that a wage of $11 a week is going to have a disastrous effect on all American industry.

There are many that still fear a disastrous effect on industry, such as increasing unemployment. However a new movement for a living wage argues that the minimum wage is not nearly high enough. The Living Wage is defined as a "subsistence" wage, "sufficient to provide the necessities and comforts essential to an acceptable standard of living." MIT developed a Living Wage Calculator that determines what a person or family would need to earn to provide the basic necessities (food and shelter) depending on geographic region. For instance, in the Seattle-Tacoma-Bellevue area, a single parent would need to earn $25.62/hr to earn a living wage, more than $10 over the minimum wage.

Economists and public policy analysts disagree on the effects of increased minimum and living wages, but they will all be watching as cities across the country roll out their higher wages in 2017. UW's own Evans School of Public Policy & Governance has launched The Minimum Wage Study focused on the wage laws of Seattle and Chicago. They will accumulate data on workers, households, employers and the local economies. This data will aid scholars and policy makers in the debate for future initiatives.

Absent overwhelming evidence of positive or negative effects of higher minimum wage laws, the debate will likely continue, as it has for hundreds of years. However, even Adam Smith, father of laissez-faire economics, believed

The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low.